Understanding The Difference Between Life Assurance And Life Insurance Policies
A life insurance policy will help safeguard your family’s future and offer them some degree of financial security in the event of your death. To put it simply, life insurance will pay out to your family either a single sum or a series of smaller sums if you were to die. Unfortunately many people do not like to think of what might happen after they die – after all, the thought of dying is quite a morbid topic. However, a life insurance policy will give much peace of mind and reassurance that your loved ones will not be burdened with unnecessary worries if the worst were to happen.
What is the difference between life insurance and life assurance? Many people get confused and assume they are the same thing but there are important differences between them. Life insurance is valid over a defined term – in other words, it is taken out for a fixed period of time. If you die before the end of the policy then it will pay out but if you survive until the end of the term then the policy finishes and no payouts are made. It is essentially the same as any other form of insurance such as house insurance.
On the other hand life assurance policies are tied into market conditions and may be considered a type of investment vehicle. The monthly premiums may be invested and there is the potential for the fund to grow. When you die, the fund is paid out, together with any accrued interest and bonus payments.
These can be further summarised into two categories. Life insurance is a protection policy – it pays out a lump if a particular event were to happen, normally a death. In other words it provides a degree of cover for something that might happen. Life assurance is an investment policy where capital is grown with the investment of monthly premiums, and provides cover for something that is certain to happen.
Market conditions in recent years have not been favourable and as a result many stock market funds have performed quite poorly. This is reflected in the poor returns currently available on life assurance products. In fact, it is often possible to obtain a better return by allowing a specialist broker to buy the policy although this approach may carry fixed penalties.
When people are searching for protection for their family and their mortgage, they often confuse the two terms. Life insurance is generally cheaper and is usually what people are after. This is why it is always important to talk to a qualified adviser if you are thinking of making any sort of financial commitment.
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Tags: Finance, health, insurance, Life Insurance